The US economy added 467,000 jobs last month, a far better than expected performance for the labour market amid the surge in coronavirus cases tied to the Omicron variant.
The surprise rise in the payrolls defied predictions by economists surveyed by Bloomberg, who projected gains of 150,000 jobs. It will fuel expectations that the Federal Reserve will move more aggressively than planned to tighten monetary policy to stamp out inflation.
It will also come as a relief for the White House, which had warned that jobs growth might be temporarily hit by the jump in Covid-19 infections.
In addition to the jump in payrolls in January, there were also large upward revisions to data from previous months, while wage growth also rose more than predicted.
The unemployment rate ticked up to 4 per cent despite the strong gains, from 3.9 per cent previously.
US government bonds sold off after Friday’s jobs report, amid fears that inflation could continue to accelerate. The two-year Treasury note yield, which is sensitive to monetary policy expectations, jumped 0.09 percentage points to 1.28 per cent, the highest level since early 2020.
The data released by the Bureau of Labor Statistics on Friday was collected during the worst of the Omicron surge in the US, which fuelled a record-setting number of Covid cases, hospital admissions and fatalities.
Top economic officials in the Biden administration had sought to get out ahead of Friday’s figures, with Brian Deese, director of the National Economic Council, saying this week that the January employment data “could look a little strange”.
The White House has touted the robust labour market recovery as one of President Joe Biden’s most important accomplishments in his first year in office, which has otherwise been beset by legislative setbacks. Despite signing into law a bipartisan infrastructure bill, his landmark $1.75tn Build Back Better spending package has stalled in Congress.
“It turns out that the peak of Omicron cases coincided with when the payroll data was being collected,” Jared Bernstein, a member of Biden’s Council of Economic Advisers, told CNN this week. “If you were not at work, if you were on unpaid leave, you’re not counted as being on payroll.”
Before the winter wave of coronavirus infections, employers were already struggling to fill their ranks, as concerns about catching Covid and childcare issues deterred many people from joining the workforce.
The number of job openings has swelled as a result, with more than 10mn reported in the final month of 2021. That translates to 1.7 job openings for every unemployed worker, the highest since the US government began collecting the data two decades ago.
Some workers have sought to capitalise on the demand for new hires and have left their jobs in search of higher-paying roles. A total of 4.3mn Americans quit in December, just shy of November’s 4.5mn record.
US labour costs have, in turn, risen sharply, as employers raised wages and sweetened benefits to compete for talent.
The Federal Reserve is charting a course towards its first interest rate increase since 2018 at its next policy meeting in March. Jay Powell, the Fed chair, had said there could be “softening” in the economy because of Omicron, but said any weakness should be “temporary”.
“We think the underlying strength of the economy should show through fairly quickly after that,” he said at the press conference following January’s gathering of the Federal Open Market Committee.
Elevated inflation has compelled the Fed to scale back its monetary policy support far more quickly than initially planned. Top officials have also left the door open to a more aggressive string of interest rate rises this year or even raising rates by half a percentage point, as opposed to the quarter-point increases that have become the norm.
The central bank is also expected to begin reducing its nearly $9tn balance sheet soon after the first interest rate adjustment in a bid to further tighten the settings of its monetary policy.
Additional reporting by Adam Samson